Are CEOs Myopic? A Dynamic Model of the Ongoing Debate
Abstract We study the events that motivate CEOs to underinvest in R&D long-term projects (CEO myopia). Based on the existing literature in earnings management and agency theory, myopia is likely to become more problematic under five circumstances: when the CEO nears retirement (the CEO horizon p...
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| creator | Levesque, Moren Phan, Phillip Raymar, Steven Waisman, Maya |
| description | Abstract
We study the events that motivate CEOs to underinvest in R&D long-term projects (CEO myopia). Based on the existing literature in earnings management and agency theory, myopia is likely to become more problematic under five circumstances: when the CEO nears retirement (the CEO horizon problem), R&D projects have very long time horizons (the project horizon problem), the firm’s financial health is deteriorating (the cover-up problem), ownership structure is heavily weighted toward insider owners (minority owner oppression problem), and when the threat of hostile takeover increases (the entrenchment problem). We setup a dynamic simulation model in which rational CEOs maximize the total value of their bonus compensation over their tenure. Our findings related to the five circumstances are consistent with the extant literature. However, we found an unexpected stable, nonlinear (inverted U-shaped) relationship between CEO tenure and R&D investment. We discuss the theoretical implications of our model and offer suggestions for future research. |
| doi_str_mv | 10.1108/S1569-373220140000017004 |
| format | Book Chapter |
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We study the events that motivate CEOs to underinvest in R&D long-term projects (CEO myopia). Based on the existing literature in earnings management and agency theory, myopia is likely to become more problematic under five circumstances: when the CEO nears retirement (the CEO horizon problem), R&D projects have very long time horizons (the project horizon problem), the firm’s financial health is deteriorating (the cover-up problem), ownership structure is heavily weighted toward insider owners (minority owner oppression problem), and when the threat of hostile takeover increases (the entrenchment problem). We setup a dynamic simulation model in which rational CEOs maximize the total value of their bonus compensation over their tenure. Our findings related to the five circumstances are consistent with the extant literature. However, we found an unexpected stable, nonlinear (inverted U-shaped) relationship between CEO tenure and R&D investment. We discuss the theoretical implications of our model and offer suggestions for future research.</description><identifier>ISSN: 1569-3732</identifier><identifier>ISBN: 9781784412920</identifier><identifier>ISBN: 1784412929</identifier><identifier>EISBN: 9781784412913</identifier><identifier>EISBN: 1784412910</identifier><identifier>DOI: 10.1108/S1569-373220140000017004</identifier><identifier>OCLC: 929024555</identifier><identifier>LCCallNum: HG4001-4285</identifier><language>eng</language><publisher>United Kingdom: Emerald Group Publishing Limited</publisher><subject>Accounting & Finance ; Corporate finance ; Corporate governance & responsibilities ; Management accounting/corporate finance</subject><ispartof>Corporate Governance in the US and Global Settings, 2014, Vol.17, p.125-151</ispartof><rights>Copyright © 2014 Emerald Group Publishing Limited</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c403t-a40e98bf45e9c41246118db9610cad060cb1865b294075ee2f7162f22e1c63493</citedby><relation>afec</relation></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Uhttps://ebookcentral.proquest.com/covers/1865246-l.jpg</thumbnail><link.rule.ids>779,780,784,793,27925</link.rule.ids></links><search><contributor>John, Kose</contributor><contributor>Ferris, Stephen P</contributor><contributor>Makhija, Anil K</contributor><creatorcontrib>Levesque, Moren</creatorcontrib><creatorcontrib>Phan, Phillip</creatorcontrib><creatorcontrib>Raymar, Steven</creatorcontrib><creatorcontrib>Waisman, Maya</creatorcontrib><title>Are CEOs Myopic? A Dynamic Model of the Ongoing Debate</title><title>Corporate Governance in the US and Global Settings</title><description>Abstract
We study the events that motivate CEOs to underinvest in R&D long-term projects (CEO myopia). Based on the existing literature in earnings management and agency theory, myopia is likely to become more problematic under five circumstances: when the CEO nears retirement (the CEO horizon problem), R&D projects have very long time horizons (the project horizon problem), the firm’s financial health is deteriorating (the cover-up problem), ownership structure is heavily weighted toward insider owners (minority owner oppression problem), and when the threat of hostile takeover increases (the entrenchment problem). We setup a dynamic simulation model in which rational CEOs maximize the total value of their bonus compensation over their tenure. Our findings related to the five circumstances are consistent with the extant literature. However, we found an unexpected stable, nonlinear (inverted U-shaped) relationship between CEO tenure and R&D investment. We discuss the theoretical implications of our model and offer suggestions for future research.</description><subject>Accounting & Finance</subject><subject>Corporate finance</subject><subject>Corporate governance & responsibilities</subject><subject>Management accounting/corporate finance</subject><issn>1569-3732</issn><isbn>9781784412920</isbn><isbn>1784412929</isbn><isbn>9781784412913</isbn><isbn>1784412910</isbn><fulltext>true</fulltext><rsrctype>book_chapter</rsrctype><creationdate>2014</creationdate><recordtype>book_chapter</recordtype><recordid>eNpl0NtKw0AQBuAVD1hr32FfIDp7yGb3SkLrCVp6od4JQ7KZtNU2W5N40bc3aYsg7s2wMP_P8DHGBdwIAfb2RcTGRSpRUoLQ0D-RAOgTNnKJFYnVWkgn1Omfv4QzNvhNXrCBkw6kjuP4kl01zQeATKy0A2bSmvj4ft7w2S5sV_6Op3yyq7LNyvNZKGjNQ8nbJfF5tQirasEnlGctXbPzMls3NDrOIXt7uH8dP0XT-ePzOJ1GXoNqo0wDOZuXOibnu7u0EcIWuTMCfFaAAZ8La-JcOg1JTCTLRBhZSknCG6WdGjJ16N3W4eubmhYpD-HTU9XW2dovs21LdYN9SVeOxqJQuku9H1K0oW6twD7TbQH2pLgnxf-k2Flgb4EHC0zxSIF7CgwldhTqB3wzb4c</recordid><startdate>2014</startdate><enddate>2014</enddate><creator>Levesque, Moren</creator><creator>Phan, Phillip</creator><creator>Raymar, Steven</creator><creator>Waisman, Maya</creator><general>Emerald Group Publishing Limited</general><general>Emerald Publishing Limited</general><scope>FFUUA</scope></search><sort><creationdate>2014</creationdate><title>Are CEOs Myopic? A Dynamic Model of the Ongoing Debate</title><author>Levesque, Moren ; Phan, Phillip ; Raymar, Steven ; Waisman, Maya</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c403t-a40e98bf45e9c41246118db9610cad060cb1865b294075ee2f7162f22e1c63493</frbrgroupid><rsrctype>book_chapters</rsrctype><prefilter>book_chapters</prefilter><language>eng</language><creationdate>2014</creationdate><topic>Accounting & Finance</topic><topic>Corporate finance</topic><topic>Corporate governance & responsibilities</topic><topic>Management accounting/corporate finance</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Levesque, Moren</creatorcontrib><creatorcontrib>Phan, Phillip</creatorcontrib><creatorcontrib>Raymar, Steven</creatorcontrib><creatorcontrib>Waisman, Maya</creatorcontrib><collection>ProQuest Ebook Central - Book Chapters - Demo use only</collection></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Levesque, Moren</au><au>Phan, Phillip</au><au>Raymar, Steven</au><au>Waisman, Maya</au><au>John, Kose</au><au>Ferris, Stephen P</au><au>Makhija, Anil K</au><format>book</format><genre>bookitem</genre><ristype>CHAP</ristype><atitle>Are CEOs Myopic? A Dynamic Model of the Ongoing Debate</atitle><btitle>Corporate Governance in the US and Global Settings</btitle><seriestitle>afec</seriestitle><date>2014</date><risdate>2014</risdate><volume>17</volume><spage>125</spage><epage>151</epage><pages>125-151</pages><issn>1569-3732</issn><isbn>9781784412920</isbn><isbn>1784412929</isbn><eisbn>9781784412913</eisbn><eisbn>1784412910</eisbn><abstract>Abstract
We study the events that motivate CEOs to underinvest in R&D long-term projects (CEO myopia). Based on the existing literature in earnings management and agency theory, myopia is likely to become more problematic under five circumstances: when the CEO nears retirement (the CEO horizon problem), R&D projects have very long time horizons (the project horizon problem), the firm’s financial health is deteriorating (the cover-up problem), ownership structure is heavily weighted toward insider owners (minority owner oppression problem), and when the threat of hostile takeover increases (the entrenchment problem). We setup a dynamic simulation model in which rational CEOs maximize the total value of their bonus compensation over their tenure. Our findings related to the five circumstances are consistent with the extant literature. However, we found an unexpected stable, nonlinear (inverted U-shaped) relationship between CEO tenure and R&D investment. We discuss the theoretical implications of our model and offer suggestions for future research.</abstract><cop>United Kingdom</cop><pub>Emerald Group Publishing Limited</pub><doi>10.1108/S1569-373220140000017004</doi><oclcid>929024555</oclcid><tpages>27</tpages></addata></record> |
| fulltext | fulltext |
| identifier | ISSN: 1569-3732 |
| ispartof | Corporate Governance in the US and Global Settings, 2014, Vol.17, p.125-151 |
| issn | 1569-3732 |
| language | eng |
| recordid | cdi_proquest_ebookcentralchapters_1865246_68_134 |
| source | Emerald Books Business Management And Economics |
| subjects | Accounting & Finance Corporate finance Corporate governance & responsibilities Management accounting/corporate finance |
| title | Are CEOs Myopic? A Dynamic Model of the Ongoing Debate |
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